Are You Considering Retrenchment?

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14th May 2020

6 min read

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As early as the first phase of the Malaysian Movement Control Order, while working from home, employees have suddenly received emails or even WhatsApp messages informing them that their employment has been terminated.

Despite the pressing urgency to ensure business sustainability, organisations should never forsake empathy and compassion towards their people, says Tahirah Manesah Abu Bakar, HR Manager of FFM Berhad, the country’s largest flour miller. 

Tahirah brings to the table over 20 years of experience in corporate legal and HR across a spectrum of industries and sits on the panel of the Malaysian Industrial Court. She is also known as a ‘Termination Specialist’. You’d think, being on the panel of a government arm and having such a title, she would be biased towards businesses. Not quite. 

As she explains in a recent in-depth interview with CAD Training Centre Director Vyasa Kandasamy, being a ‘termination specialist’ does not mean walking around the office with a rusty machete just waiting to lop heads off. Her role is advising management and interested parties on managing employee dismissals lawfully and ethically. To maintain a good organisational climate, employers who are faced with the inevitable decision to terminate employees must understand the impact of their actions and decide wisely how they want to do it.

It’s not human resources, it’s people power

Tahirah cautions companies against treating employees like they would any other resource; useful only when profitable but a burden when not. Bottom-line thinking can cause management to take very unwise steps that hurt not only their employees, but also the company. Whenever something as life-changing as termination is being considered, the law must be observed, global pandemic notwithstanding. Proper procedures must be followed. And ultimately, termination should always be a final solution, when every other avenue has been exhausted. 

retrenchment

The problem is, as Tahirah states, out of desperation to cut costs and being ill-prepared to handle mass retrenchment, the termination ends up ethically and legally questionable. The termination may be challenged by the employee, with dire repercussions for the employer in terms of costs and reputation.

See also: Positive Psychology: Harnessing the Good and Right in People

Retrenchment vs laying-off – there’s a difference

Is retrenchment even the right term to use? So many have found their services terminated in the name of retrenchment. You might hear people lament about being retrenched on the same day they received notice. This, says Tahirah, is not retrenchment. It’s summary termination, or termination simpliciter, which is unlawful in Malaysia

Retrenchment of employees must comply with the Employment Act 1955. Retrenchment benefits for employees under the ambit of the Employment Act may be found in the Employment (Termination and Lay-off Benefits) Regulations 1980. Employees who are outside the scope of the Employment Act are subject to the provisions of their employment contract.

Employers should also be aware of the Code of Conduct for Industrial Harmony 1975 which outlines objective guides for termination. Employers who have taken every other measure and are now forced to retrench must:

  1. Provide ample notice to the employee
  2. Provide voluntary retrenchment benefit schemes
  3. Provide termination compensation no less than as laid out in the Employment Act 1995
  4. Prioritise retrenchment of employees above the normal retirement age
  5. Work with the Ministry of Human Resources to help employees find new jobs
  6. Spread terminations over a long period – no mass terminations 
  7. Whenever possible, observe the LiFo Principle (the newest employees are the first to be terminated)
  8. Consider the family situation of the employee
  9. Other factors as a result of national policy – ie. Is there affirmative action to get jobs for certain demographics?

The old KPI trick

According to Tahirah, the recent trend is for employers to summarily terminate the services of employees under the guise of underperformance, with no pre-warnings. As early as the first phase of the Malaysian Movement Control Order, while working from home, employees have suddenly received emails or even WhatsApp messages informing them that their employment has been terminated.

retrenchment

If it was an issue with performance, some type of remedial action should have been taken. An extension to the probationary period, perhaps, or putting the employee on a Performance Improvement Plan. If a company is facing financial constraints, it should be transparent to employees, instead of cloaking the real intention of letting go of its people. This may give rise to unfair dismissal claims. That said, termination should be the very last resort after all cost-cutting measures have been exhausted. 

Again, this will leave an undesirable effect on the organisational climate and is a really good way for the employer to burn bridges not just with the employees who are terminated, but also the ones left behind. It’s not very nice to know your company will resort to underhanded tactics to get rid of you. Remember, the only time burning bridges is any good is if you are Dave Grohl.

Just as employees leaving companies are told to always leave on a good note, so must employers who are parting with their staff. Yes, terminations are inherently unpleasant, but management must do everything they can to minimise the bitterness.

Think about what can be done for people before and even after you lay them off. Once the economy rebounds, you will need people. To rehire new people will consume a lot of time and resources. But you may not have to if you had handled things properly.

Negotiate pay cuts beforehand

It’s perhaps the second worst thing before actual termination, but for many, it’s a preferable alternative. Before terminating an employee, companies should seriously consider negotiating a pay cut with them. The keyword here is ‘negotiate’. Pay cuts cannot be decided unilaterally. For some, their commitments mean it would be better to accept a retrenchment scheme rather than a pay cut. 

It’s perhaps the second worst thing before actual termination, but for many it’s a preferable alternative. Before terminating an employee, companies should seriously consider negotiating a pay cut with them.

Negotiating also means that employee consent cannot be obtained forcefully, such as under duress or undue influence. Employees must be given ample time to consider their options and be given the opportunity to ask questions. Be prepared to answer these questions patiently. In moments of stress, people do not think clearly. They are not just looking for answers, they are looking for reassurance. 

Consider temporary layoffs

The benefit of layoffs versus retrenchments is that layoffs can be temporary. Employers can explain that once the economy recovers and the business model allows for more staff, the ones put on temporary layoff will be rehired. In the meantime, the employees in question are of course free to seek other opportunities. During this period of extended unpaid leave, the company should continue to reach out to these employees to share information and check-up on them. The company could even set aside some emergency funds for these employees. Such acts of good faith will ensure the loyalty of staff when things do start to look better.

Have proper policies in place

The suits may have the best intentions, but if they cannot speak on the level of the floor workers, the message will be lost and so will faith in the company.

The existence of a comprehensive employee handbook cannot be underestimated. For crisis or emergency situations a framework of policies covering crisis communication, outbreak management and employee health risks are crucial. These policies do not need to be extremely fancy. A simple one will do. It should also include the steps taken to show that as an employer, you care about your people. Being scared and worried, your people would want to turn to you for assurance and a source of trustworthy information. 

This is where the HR department must earn their keep as the bridge between management and the rest of the staff. The suits may have the best intentions, but if they cannot speak on the level of the floor workers, the message will be lost and so will faith in the company. Remember that video where President Obama had an anger translator? The HR department must be the compassion translator for the company.

I have been unfairly terminated – what are my options?

Malaysian employees may lodge a report with the Industrial Court within 60 days of the date of dismissal. Tahirah does mention that while everyone has the right to file a complaint, consider what you really want. If it is to be reinstated, do you truly want to work for a company that treats employees like that? Factor in the time, effort and money involved in taking things to court, and Tahirah says sometimes it would be wiser to cut your losses and move on.

Towards the end of the interview, a viewer asked whether companies should treat their employees with compassion or follow the law when it came to termination. Tahirah’s view was that ‘to follow the law is to be compassionate‘. Employment law, in its spirit, is to uphold equity, taking all parties into consideration. 

As should employers, especially during such times. Consider all parties, and remember that money is not everything. 

You can watch the full interview down below:

Read: Maintaining Employee Engagement in Times of Crisis

Editor’s note: If you are are a HR professional looking to learn and enable your business to transform through 21st century HR best practices, you must check out the various webinars by HR thought leader and expert, Roshan Thiran. Do sign up here!

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